Speed of execution of orders for securities is an increasingly important element of overall quality of execution. Modern automated systems for order execution make available even to private investors a high quality of market information coupled with increasing speed of execution. More and more often, investors and traders equate quality of execution with speed, that is, with the ability to enter and order and have the order execute at or near the price they see on their computer screens.
Viewed according to their interest in speed as an element of quality execution, investors can be classified in three broad categories. First, there are traditional investors. Traditional investors trade approximately once a month. Traditional investors are interested in long term investment. Traditional investors may have relatively little concern with speed of execution because traditional investors, intending to hold the stock for months or years, may be perfectly happy with any price in the stock""s daily trading range. The quality of market information available to traditional investors, however, is increasing dramatically. As the quality of information increases, even traditional investors are becoming more demanding of quality execution.
The second category of investors is hyperactive investors. Hyperactive investors are serious hobbyists or enthusiasts rather than professional investors. They do not earn their living exclusively from investing. They have other professions or occupations, but they are focally interested in the process of investing. Hyperactive investors trade approximately once daily, about twenty times more often than traditional investors. Hyperactive investors are often interested in popular stocks in which they may remain invested for relatively short periods of time, perhaps only a few days or hours. Hyperactive investors are well aware of advances in the quality of market information available, and hyperactive investors are well aware of the relationship between speed and quality of execution. Hyperactive investors increasingly therefore demand a high quality of execution including, especially, access to a currently displayed inside price, which access depends upon speed of execution.
The third category of investors is day traders. Day traders are full-time, individual, professional securities traders. Day traders generally may make thirty to fifty trades a day, perhaps fifty times as many trades as hyperactive investors and a thousand times as many as traditional investors. Day traders probably account for about fifteen percent of the trading volume on Nasdaq. For day traders, quality of execution is a matter of financial survival and is crucially important. A delay in execution of even a few seconds can cause a loss for a day trader because markets can change so quickly. Day traders cannot tolerate traditional aggregation, internalization, or payment for order flow. Day traders cannot tolerate many of the kinds of delay common in prior art. When a day trader enters an order, the order must be executed as quickly as possible, at or near the displayed quote price, regardless of delay between changes in actual quote price and the resulting display of market information. Day traders have no time to wait for redundant cancellations to work their way through communications channels.
Broker-dealers often make available to their customers on-line submission, cancellation, and tracking of the status of orders for securities. Securities trading customers include traditional investors, hyperactive investors, day traders, and institutions. Such customers make many quick decisions regarding when and from whom to order securities. All such customers are increasingly demanding regarding quality and speed of execution.
In modern automated systems for execution of orders for securities, it is common for customers to be provided with automated methods and systems for canceling orders. Customers can cancel the same order more than once. For some reasons, it is desirable for customers to be able to cancel the same order more than once, perhaps many times, all approximately at the same time. In such automated systems, orders are sent by broker-dealer systems to automated markets. The automated markets do not always reliably respond to cancellations by canceling the subject orders. Cancellations may be subject to faulty receipt, rejection or other failures to execute in their destination markets, for many technical reasons.
Regardless of the reasons, however, the fact is that sending one automated cancellation may not actually result in cancellation of the subject order. If the orders are not cancelled, the customer is left in possession of the market risk in a securities position that the customer has already decided to exit. In volatile markets, the risk of remaining in an undesirable position in the market can be large. It is common, therefore, for customers in possession of the automated tools to issue multiple redundant cancellations for the same order.
Multiple redundant cancellations for the same order can create a large burden on the data communications systems that connect broker-dealer systems to automated markets. Some automated broker-dealer systems make available to customers automated systems for canceling all their presently outstanding orders. Such a facility is useful, for example, as an automated way for a customer to alter the customer""s entire market position. Such systems do, however, represent a substantial problem for the data communications systems they feed. A customer may have dozens or even hundreds of orders outstanding, and the customer may simply reach down to the customer""s keyboard and press the  less than CANCEL ALL greater than  button several times, resulting in hundreds or even thousands of cancellations, most of which are uselessly redundant. Such massive quantities of redundant cancellations can have a large negative impact on overall order execution speed, sometimes bringing broker-dealer systems almost to a halt.
If there is a small risk that sending one cancellation might be ineffective, that risk can be reduced by sending two. The risk could be further reduced by automated determination whether the first cancellation is actually received by the destination market. The risk could be further reduced by automated determination whether the first cancellation is actually executed by the destination market. Sending redundant cancellations for orders represents an unnecessary burden on data communications systems. Automated systems and methods therefore, are needed for better administration of redundant cancellations.
The present invention provides methods and systems for administering redundant cancellations for orders for securities. The overall purpose of the invention is to improve the speed of automated execution of orders for securities by avoiding effects that slow automated systems for executing orders.
In a first aspect of the invention, a process is provided for canceling orders for securities in an automated securities trading broker-dealer system. This process provides the capabilities of receiving a new cancellation from a client and searching a cancellation queue for a cancellation corresponding to the new cancellation. If the corresponding cancellation is found in the cancellation queue, the redundancy count of the corresponding cancellation is incremented in the cancellation queue and the new cancellation is discarded. However, if a cancellation corresponding to the new cancellation is not found in the cancellation queue, a copy of the new cancellation is placed in the cancellation queue and the new cancellation is sent to the market. Additionally, this process provides the capability of periodically scanning the cancellation queue for cancellations having a redundancy count greater than zero. The redundancy count of each cancellation in the cancellation queue having a redundancy count greater than zero is decremented and an additional cancellation is sent to the market.
In another aspect of the invention, a system is provided for canceling orders for securities in an automated trading broker-dealer system. The system is implemented in hardware and software on automated computing machinery. The system comprises a processor coupled to at least one client system and at least one market system. The processor is programmed to receive a new cancellation and search a cancellation queue for a cancellation corresponding to the new cancellation. If a cancellation is found that corresponds to the new cancellation, the processor is programmed to increment the redundancy count of the corresponding cancellation in the cancellation queue and to discard the new cancellation. However, if a cancellation is not found that corresponds to the new cancellation, the processor is further programmed to place a copy of the new cancellation in the cancellation queue and send the new cancellation to the market. Additionally, the processor is programmed to periodically scan the entire cancellation queue for cancellations having a redundancy count greater than zero. If cancellations having a redundancy count greater than zero are found in the cancellation queue, the processor is further programmed to decrement the redundancy count of each queued cancellation having a redundancy count greater than zero and send an additional cancellation corresponding to the found cancellation to the market.
The system further comprises the processor coupled to memory for storage of cancellations received from the client, to a storage device for disaster recovery, and to communication ports for data transmission to and from the system.
The present invention encompasses various alternative process and system embodiments for canceling orders for securities in an automated trading broker-dealer system. These embodiments include canceling orders for securities wherein the order for the new cancellation received is still residing in the market queue waiting to be sent to the market. Other embodiments include canceling orders for securities based upon the reception of an acknowledgement or response to a cancellation previously sent to the market. Other embodiments include implementing Immediate or Cancel orders (IOC) for markets that do not support IOC orders.